Chapter 8 - SCC Porter

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E-commerce
Essentials
first edition
Kenneth C. Laudon
Carol Guercio Traver
Copyright © 2014 Pearson Education, Inc.
Chapter 8
Online Retail and Services
Copyright © 2014 Pearson Education, Inc.
Class Discussion
Blue Nile Sparkles for Your Cleopatra
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Why is selling (or buying) diamonds over the
Internet difficult?
How has Blue Nile built its supply chain to keep
costs low?
How has Blue Nile reduced consumer anxiety over
online diamond purchases?
What are some vulnerabilities facing Blue Nile?
Would you buy a $5,000 engagement ring at Blue
Nile?
Copyright © 2014 Pearson Education, Inc.
Slide 8-3
The Retail Sector
Most important theme in online retailing is
effort to integrate online and offline
operations
 U.S. retail market accounts for $11.1 trillion
(71%) of total GDP

Copyright © 2014 Pearson Education, Inc.
Slide 8-4
The Retail Industry
 Seven segments (clothing, durable goods,
etc.)
 For each, uses of Internet may differ
 Information vs. direct purchasing
 Mail order/telephone order (MOTO)
sector most similar to online retail sector
 Sophisticated order entry, delivery, inventory
control systems
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Slide 8-5
Composition of the U.S. Retail Industry
Figure 8.1, Page 314
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SOURCE: Based on data from U.S. Census Bureau, 2012.
Slide 8-6
E-commerce Retail: The Vision
Reduced search and transaction costs; customers
able to find lowest prices
 Lowered market entry costs, lower operating costs,
higher efficiency
 Traditional physical store merchants forced out of
business
 Some industries would be disintermediated
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Few of these assumptions proved correct—structure of retail
marketplace has not been revolutionized
Internet has created new venues for multi-channel firms and
supported a few pure-play merchants
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Slide 8-7
The Online Retail Sector Today
Smallest segment of retail industry (5%–6%)
 Growing at faster rate than offline segments
 Revenues have resumed growth
 Around 72% of Internet users bought online
in 2012
 Primary beneficiaries:

 Established offline retailers with online
presence (e.g.: Staples)
 First mover dot-com companies (e.g.: Amazon)
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Slide 8-8
Online Retail and B2C E-commerce Is Alive and Well
Figure 8.2, p. 316
SOURCES: Based on data from eMarketer, Inc., 2012a; authors’ estimates.
Copyright © 2014 Pearson Education, Inc.
Slide 8-9
Multi-channel Integration

Integrating Web operations with traditional
physical store operations
 Provide integrated shopping experience
 Leverage value of physical store

Types of integration
 Online order, in-store pickup
 Web promotions to drive customers to stores
 Gift cards usable in any channel

Increasing importance of mobile devices,
social commerce, and tablets
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Slide 8-10
E-tailing Business Models
 Virtual merchant

Amazon
 Bricks and clicks

Walmart, J.C. Penney, Sears
 Catalog merchant

Lands’ End, L.L. Bean, Victoria’s Secret
 Manufacturer-direct

Dell
Copyright © 2014 Pearson Education, Inc.
Slide 8-11
Common Themes in Online Retailing
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Online retail fastest growing channel on revenue
basis
Profits for startup ventures have been difficult to
achieve
Disintermediation has not occurred
Established merchants need to create integrated
shopping experience to succeed online
Growth of online specialty merchants, e.g. Blue Nile
Extraordinary growth of social, local, and mobile
e-commerce
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Slide 8-12
Insight on Technology: Class Discussion
Using the Web to Shop Till You Drop
What do comparison sites offer consumers?
 Why are comparison shopping sites more
successful with hard goods than soft goods?
 What is the strategy of Shopping.com?
 How can shopping bots compare luxury
goods?
 How does adding content to comparison sites
help consumers?

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Slide 8-13
Online Services
 Service sector:
 Largest and most rapidly expanding part of
economies of advanced industrial nations
 Concerned with performing tasks in and around
households, business firms, and institutions
 Includes doctors, lawyers, accountants, business
consultants, etc.
 Employs four out of five U.S. workers
 75% of economic activity
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Slide 8-14
Online Financial Services
Example of e-commerce success story, but
success is somewhat different from what had
been predicted
 Brokerage industry transformed
 62% of customers prefer online banking
 Effects less powerful in insurance, real estate
 Multi-channel, established financial services
firms continue to show growth

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Slide 8-15
Online Financial Consumer Behavior
Consumers attracted to online financial sites
because of desire to save time and access
information rather than save money
 Most online consumers use financial services
firms for mundane financial management

 Check balances
 Pay bills

Number of people using mobile devices for
financial services is surging
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Slide 8-16
Online Banking and Brokerage
Online banking pioneered by NetBank and
Wingspan; neither still in existence
 Established brand-name national banks have
taken substantial lead in market share
 107 million people use online banking;
expected to rise to 116 million by 2014
 Early innovators in online brokerage
(E*Trade) have been challenged by
established brokerages (Fidelity, Schwab)

Copyright © 2014 Pearson Education, Inc.
Slide 8-17
The Growth of Online Banking
Figure 8.3, Page 328
Copyright © 2014 Pearson Education, Inc.
SOURCE: Based on data from comScore, 2010a,
eMarketer, Inc., 2010; authors’ estimates.
Slide 8-18
Multi-channel vs.
Pure Online Financial Service Firms
Online consumers prefer multi-channel firms
with physical presence
 Multi-channel firms
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 Growing faster than pure online firms
 Lower online customer acquisition costs

Pure online firms
 Cannot provide all services that require face-to-face
interaction
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Slide 8-19
Financial Portals and
Account Aggregators

Financial portals
 Comparison shopping services, independent financial
advice, financial planning
 Revenues from advertising, referrals, subscriptions
 e.g.: Yahoo! Finance, Quicken.com, MSN Money

Account aggregation
 Pulls together all of a customer’s financial data at a
personalized Web site
 e.g.: Yodlee: provides account aggregation technology
 Privacy concerns; control of personal data, security, etc.
Copyright © 2014 Pearson Education, Inc.
Slide 8-20
Online Mortgage and
Lending Services
Early entrants hoped to simplify and speed
up mortgage value chain
 Most early-entry, pure-online firms failed
 Today, slowly growing; dominated by
established online banks, financial services
firms and traditional mortgage vendors
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Slide 8-21
Online Insurance Services

Online term life insurance
 One of few online insurance with lowered search costs,
increased price comparison, lower prices
 Commodity
Most insurance not purchased online
 Online industry geared more toward

 Product information, search
 Price discovery
 Online quotes
 Influencing the offline purchasing decision
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Slide 8-22
Online Real Estate Services
Early vision: Disintermediation of a complex
industry
 However, major impact is influencing of purchases
offline

 Impossible to
complete property transaction online
 Main services are online property listings, loan
calculators, research and reference material, with
mobile apps increasing

Despite revolution in available information, there
has not been a revolution in the industry value
chain
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Slide 8-23
Online Travel Services
One of the most successful B2C e-commerce
segments
 Online travel bookings declined slightly due to
recession but expected to grow to $150 billion in
2016
 For consumers: More convenient than traditional
travel agents
 For suppliers: A singular, focused customer pool
that can be efficiently reached through onsite
advertising
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Slide 8-24
Online Travel Services (cont.)

Travel an ideal service/product for Internet
 Information-intensive product
 Electronic product—travel arrangements can be
accomplished for the most part online
 Does not require inventory
 Does not require physical offices with multiple
employees
 Suppliers are always looking for customers to fill excess
capacity
 Does not require an expensive multi-channel presence
Copyright © 2014 Pearson Education, Inc.
Slide 8-25
Online Travel Services Revenues
Figure 8.4, Page 332
Copyright © 2014 Pearson Education, Inc.
SOURCE: Based on data from eMarketer, 2012.
Slide 8-26
The Online Travel Market

Four major sectors:
 Airline tickets
 Hotel reservations
 Car rentals
 Cruises/tours

57% purchase airline tickets from airline’s
Web site, 22% from travel booking Web site
(e.g.: Expedia)
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Slide 8-27
Online Travel Industry Dynamics
Intense competition among online providers
 Price competition difficult
 Industry consolidation
 Industry impacted by meta-search engines
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 Commoditize online travel
Mobile applications are also transforming
industry
 Social media content, reviews have an
increasing influence on travel purchases
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Copyright © 2014 Pearson Education, Inc.
Slide 8-28
Insight on Society: Class Discussion
Phony Reviews
Should there be repercussions to individuals
and/or businesses for posting false reviews
of products or services?
 Can phony reviews be recognized and
moderated?
 Do you rely more on some types of reviews
or comments on Web sites and blogs over
others?
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Copyright © 2014 Pearson Education, Inc.
Slide 8-29
Online Career Services
Top sites generate over $1 billion annually
 Two main players: CareerBuilder, Monster
 Traditional recruitment tools
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Classified, print ads, career expos, on-campus recruitment, staffing
firms, internal referral programs
Online recruiting
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More efficient, cost-effective, reduces total time-to-hire
Enables job hunters to more easily distribute resumes while
conducting job searches
Ideally suited for Web due to information-intense nature of process
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Slide 8-30
It’s Just Information:
The Ideal Web Business?

Recruitment ideally suited for the Web
 Information-intense process
 Initial match-up doesn’t require much personalization
Saves time and money for both job hunters
and employers
 One of most important functions

 Ability to establish market prices and terms (online
national marketplace)
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Slide 8-31
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Slide 8-32
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